IFAC president shares vision for the future.

Robert Bunting became president of the International Federation of
Accountants (IFAC) in November, beginning a two-year term. Prior to
this, he was deputy president of IFAC for two years and has been a
member of the IFAC Board since 2005. Bunting is a partner in
Seattle-based Moss Adams LLP, where he was chairman and CEO from 1982
to 2004.

From 2004 to 2005, Bunting was chairman of the AICPA. He previously
was a member of the AICPA board of directors and is a past chairman or
member of several AICPA committees, including the Audit Committee,
Board of Examiners and the SEC Practice Section Executive Committee.

Bunting recently answered questions from the JofA.

JofA: Could you briefly describe the relationship between the
AICPA and IFAC?

Bunting: IFAC is an organization of what we call “member
bodies.” These are the institutes around the world. There are 157
national institutes that are members of IFAC. The AICPA is far and
away the largest member. It is our biggest financial supporter, and it
supplies us with the largest number of experts and volunteers for
technical committees and standard-setting committees. Many of the
AICPA’s members come from national and regional U.S. firms, and they
also participate in IFAC standardsetting activities through the Forum
of Firms, which is an association affiliated with IFAC that is
comprised of accounting firms that perform audits of financial
statements that are or may be used across national borders.

JofA: How does IFAC work with its member organizations to
strengthen the global profession?

Bunting: We only have 55 employees, and yet we have been
able to write standards that have been accepted in more than 110
countries around the world. The way we succeed in doing that is that
we collaborate deeply with volunteers supplied from member bodies and
the Forum of Firms. Those bodies nominate people to serve on standards
boards, the Small and Medium Practice Committee, the Compliance
Advisory Panel and all the other committees that carry out the work of
IFAC. The member bodies and global networks of firms collaborate with
us by supporting volunteers to do that work. As a consequence of that
they are an integral part of our effort to spread standards around the
world, but they also assist us by a mentoring program.

JofA: How significant is the growth of international firm
networks and associations to the future of the global
profession?

Bunting: A new independence standard developed a few
years ago describes the concept of accounting firm networks and
relates to the independence standard in the IFAC Code of Conduct. That
made firms around the world face the issue of whether or not they were
going to be network firms, as defined by the code, or associations.
Network firms have to be independent of one another with respect to
public company audit clients; associations do not. The network firms,
though, have also made a commitment to implement a common approach to
quality control around the world using an IFAC standard called ISQC1.
Frankly, regulators in the capital markets are relying on global firm
associations becoming networks as defined by the IFAC Code. They will
start to implement transnational quality control mechanisms and
regimes. They will start to do quality inspections of one another, and
regulators are counting on that process to improve audit quality
especially in developing countries where there is no effective
regulatory mechanism to implement quality.

JofA: How do you see the role of the U.S. accounting and auditing
profession changing in view of influence from the EU and Asia?

Bunting: Well, the U.S. auditing and accounting
profession has actually been influenced by the EU and Asia for a few
years now because we are jointly through the International Accounting
Standards Board (IASB) developing international reporting standards,
and through the International Auditing and Assurance Standards Board
(IAASB) we are jointly developing international auditing standards,
and through the International Ethics Standards Board for Accountants
we are developing ethics standards. The AICPA as a member of IFAC is
committed to actively support the implementation of those standards
within the United States. The Auditing Standards Board in the United
States has been basing its standard building on IAASB standards since
1998, and they have converged considerably to IFAC’s International
Standards on Auditing (ISAs). The [AICPA] Professional Ethics
Executive Committee has also been focusing on convergence with
international standards for more than five years. So as a practical
matter the auditing profession in the United States is tracking with
the auditing profession around the world. We have our own national
bodies as many other countries do, but those bodies are basing their
national standards on international standards. I think the U.S.
auditing and accounting profession is doing just fine with those
global influences.

JofA: Why should local CPA firms be interested in international
standards on auditing and accounting?

Bunting: Local accounting firms should be interested in
international standard setting for a number of reasons. For one thing
it is very important that small and medium practices have input into
the process of setting international standards because those standards
come into the United States and become part of our national standards
for private companies. So if I’m in practice and I’m auditing private
companies, or I’m doing accounting work, all of the independence rules
I live with, all of the auditing standards I use, even the financial
reporting standards I use are influenced either directly or indirectly
by global standards, and those global standards permeate the United
States in a very, very direct way. So if you’re in a small practice,
you need to be concerned about what’s going on at the global level
because ultimately that is what you’re going to be dealing with.

JofA: What will be your focus over the next two years as IFAC’s
president?

Bunting: Having spent the last two years as chair of the
IFAC Planning and Finance Committee, my priorities are those set out
in the 2009–2012 IFAC Strategic Plan. First, we intend to continue to
strengthen our role as the international standard setter in auditing,
ethics, education and public-sector financial reporting. Second, we
intend to provide more assistance around the world to our member
bodies, governments and firms in implementing those standards. While
most of the major capital markets require or permit the use of our
auditing and ethics standards, we are still working toward formal
European Commission endorsement, and we have some distance to go with
the PCAOB. Many less developed countries are happy to “adopt” our
standards, but have limited resources and ability to implement them.
Standards only have value if they are implemented, hence the increased
focus on implementation support.

There are two other important areas of focus. We are committed to
continued enhancement of the relevance of the accounting profession.
This goes to increasing the effectiveness and value of the roles
professional accountants already fulfill and expanding our role into
areas such as enhanced business reporting and sustainable value
creation. Finally, we seek to be the voice of the international
accountancy profession where our distinct global position makes us
uniquely qualified to serve in that role. The current global financial
crisis is a good example of a place where a global voice is needed.

JofA: Will the financial crisis impact convergence to
international standards?

Bunting: I believe that the rapid spread of the financial
crisis and the realization that no one country acting alone could do
enough to restore confidence demonstrates how closely linked the major
economies have become. As we have seen in the fair value accounting
dialogue of the past few months, regulators and governments have come
to the logical conclusion that accounting standards should create a
level playing field in the capital markets. Any accounting treatment
that seems to benefit companies in one country to the detriment of
others will not be tolerated. This means that the financial reporting
standards need to be substantially the same. I believe that the level
playing field argument applies just as much to auditing and ethics
standards, and most regulators seem to agree. After the dust settles a
bit, I think the forces for international convergence will be stronger
than ever.

JofA: What is the IAASB doing from an auditing standards
perspective to respond to the current global economic crisis?

Bunting: There is no indication that auditing standards
had anything to do with the current financial crisis. However, the
IAASB is just as interested as the regulators, governments and other
standards setters in identifying anything that might have contributed
to the crisis and, to the extent possible, making the necessary
changes to prevent this from ever happening again. To date, the IFAC
and IAASB leadership have participated in several meetings with
regulators and other standard setters as well as the Forum of Firms to
discuss the root causes of the crisis and what checks and balances
either failed or were not in place to prevent it. It is important that
any changes that might be necessary be based on a full understanding
of what they are designed to correct and that they follow appropriate
due process.

JofA: The globalization of accounting standards is moving full
steam ahead as more and more countries adopt IFRS. What are audit
standard setters doing to keep pace?

Bunting: International auditing standards are used
directly in many countries that use IFRS as well as in many that
follow other financial reporting standards. The Auditing Standards
Board in the U.S. bases its private company audit standards on ISAs,
and private companies in the U.S. currently report under U.S. GAAP. As
a consequence there is no direct link between the adoption of IFRS
globally and the agenda of the IAASB. I believe that most of the
arguments for a single set of financial reporting standards do apply
to a single set of auditing standards, but the standards themselves
are not tightly linked.

JofA: Will the promulgation of International Standards on
Auditing remain under IFAC?

Bunting: IFAC is committed to developing standards in the
public interest. As long as we continue to achieve this objective, I
see no reason that we would not continue in our current role. The IFAC
reforms implemented in 2004 established, among other changes, a system
of formal oversight of our standard-setting activities indirectly by
the Monitoring Group of regulators and directly by the Public Interest
Oversight Board, whose members are appointed by the Monitoring Group.
The Monitoring Group will be performing a five-year effectiveness
review of the reforms in 2009. We look forward to the results of that
review. I note with some interest that the conclusions of the
Constitution Committee study by the IASC Foundation included a
recommendation to establish an oversight group, similar in composition
to the Monitoring Group that oversees IFAC standard- setting
activities. I take this as an indirect indication that the IFAC
reforms have gained credibility for our standard-setting process.

JofA: Over the last few years, the IAASB has undertaken a massive
project to change how the ISAs are presented, commonly referred to
as the clarity project. What is the objective of the clarity
project, and how do you think it will enhance the audit process?

Bunting: The principal objective of the clarity project
was to simplify the language of the standards so that they could be
more easily understood, more accurately translated into other
languages, and more effectively implemented. This was a condition laid
down by the European Commission for adoption of ISAs in the EU, but it
was also an important step toward achieving quality convergence around
the world. The Auditing Standards Board in the U.S. has recently
announced its own clarity project, based in part on the success of the
IAASB project.

JofA: What will be the IAASB’s priority going forward now that
the clarity project is coming to an end?

Bunting: In order to efficiently complete the clarity
project, the IAASB de-emphasized efforts to develop new standards and
take on other projects. Coincident with the completion of the clarity
project, the current chair of the IAASB, John Kellas, will retire and
a new chair, Arnold Schilder, will take up the reins. The new chair
will probably want to conduct his own review of the IAASB’s recently
published 2009–2012 work program going forward. There is a
considerable backlog of projects contemplated in that plan. The IAASB
also has an interest in adoption and implementation of its standards,
and in 2009–2012 some of its resources will be allocated to supporting
efforts by countries and member bodies to adopt the standards, and to
respond to concerns and challenges arising out of adoption and
implementation activities around the world.

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